UAE Banks’ Performance and the Oil Price Shock: Indicators for Conventional and Islamic Banks - Economic Research Forum (ERF)

UAE Banks’ Performance and the Oil Price Shock: Indicators for Conventional and Islamic Banks

Magda Kandil and Minko Markovski


Date:
January, 2019

NO.
1284

Length:
28 pages

Topic:
E3. Prices, Business Fluctuations, and Cycles
Q4. Energy
E5. Monetary Policy, Central Banking, and the Supply of Money and Credit
G2. Financial Institutions and Services
G. Financial Economics
E. Macroeconomics and Monetary Economics

This study attempts to identify whether the oil price fall to a “new normal” in mid-September 2014 has had an impact on banks’ performance in the UAE, such as Return on Assets (ROA) and Return on Equity (ROE) in addition to credit and deposit growth.  The sample is for a sample of 22 national banks in the country over a period of 15 quarters. The oil price fall has had a negative structural break impact on all four banking indicators. In addition, the analysis evaluates the difference in ROA, ROE and creditand deposit growth by bank type, conventional vs. Islamic banks, across the sample of 22 banks. The results indicate that Islamic banks have a higher lending and deposit growth rates, however conventional banks tend to have better indicators of performance. Further, the oil price fall has impacted banks’ performance adversely, and the growth of assets and liabilities as a result of the slowdown in economic activity, fiscal consolidation, and decreasing levels of employment and corporate profitability. Further, Islamic banks, judged by lending and deposit growth, have managed to tailor their products to cater to a growing demand. However growth objectives appear to have reduced the margins of return in Islamic banks, compared to conventional banks.

Research Fellows

Magda Kandil

Chief Economist and Director of Research, Central Bank of the United Arab Emirates


Minko Markovski

Senior Economist at the Central Bank of the UAE


Project

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